Democratizing finance the radical promise of fintech (Marion Laboure, Nicolas Deffrennes)

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The book examines how financial technology (fintech) is promising to impact economic and social outcomes like financial inclusion, inequality, economic growth, and investment on a global scale.
Fintech refers to new technologies developed in the 21st century to compete with traditional methods of delivering financial services, such as mobile banking, digital investing, and cryptocurrencies. These technologies aim to make financial services more accessible.
The financial services sector has seen massive consolidation through mergers and acquisitions over recent decades, fueling economies of scale for large banks and insurers. However, consolidation is losing steam since the 2008 financial crisis.
The crisis weakened large financial institutions and left unmet demand, particularly among lower-income groups and small businesses. Digital technologies have provided new solutions and business models to meet this demand.
The emergence of fintech is beginning to reshape societies and economies by democratizing access to financial services without intermediaries. Decisions around fintech will influence economic inclusion and the global balance of power between nations.
Brokers, digital wallets, mobile payments, and peer-to-peer platforms have increasingly competed with traditional banks and provided new financial services alternatives for consumers.
Cryptocurrencies have reduced banks’ intermediary role in money exchange, while blockchain and other data technologies have disrupted backend processes.
The impact of these technologies will be easier to analyze once they mature. Some may become obsolete or replaced, while others may not see widespread adoption. But they are laying the foundation for future changes.
Overall, fintech is democratizing finance by extending affordable banking services to the 1.7 billion unbanked adults globally. This trend could help reduce inequality by giving more people access to critical financial tools.
Fintech is especially helping millions escape poverty by providing basic banking and improving services around healthcare, government services, farming and more in developing nations. It facilitates entrepreneurship and stability for the poor.
While technology may initially increase inequality in some places, it ultimately reduces poverty globally by giving more access to information, jobs and opportunities in emerging markets.
The book examines the impacts of fintech on both advanced and emerging economies, how it helps address different financial challenges in each context, and implications for policymakers.

Here is a summary of chapters 8-9:

Chapter 8 focuses on the digitization of money and payments systems. It analyzes the transition from paper currency to digital payments over the 20th century. It also describes the current strategic battle between banks, card companies, and tech innovators to control mobile payments as smartphones replace physical wallets.
Chapter 8 included an exclusive survey of over 3,600 customers in China, France, Germany, Italy, the UK, and US on their payment preferences and attitudes towards digital currencies. Some results are presented in appendices.
Chapter 9 provides an in-depth overview of digital currencies like Bitcoin and central bank digital currencies being developed in countries like India and China. It explores the factors driving mainstream adoption of these currencies and the regulatory issues they raise.
Overall, chapters 8-9 present a practical overview of recent developments in payment systems and digital currencies. Chapter 9 in particular aims to give readers an understanding of the issues that will shape currencies and payments by 2030.

Here is a summary of the key points about employment from the passage:

The baby boom generation generally saw greater economic benefits (revenues and social benefits) than their parents’ generation due to strong post-WWII economic growth.
In recent decades, incomes have stagnated or declined for the middle class in advanced economies. Between 2005-2014, incomes rose for only 1/3 of households globally, with 2/3 seeing stagnation or declines.
Structural changes like globalization, automation, and offshoring of jobs have driven many low- and medium-skilled jobs abroad, reducing wages and opportunities for those groups domestically.
Demographic shifts with aging populations are reducing the tax base and increasing costs of pensions and healthcare, limiting governments’ ability to provide generous social benefits.
Reversals have occurred in some countries like Sweden which reformed taxes and pensions to encourage work and investment, increasing incomes for 80% of households from 2005-2014.
Aging populations and debt burdens make it difficult for governments to maintain historic levels of social benefits for millennials, increasing the need for private savings.
AI and robotics may eliminate many industrial jobs in developed countries as they undergo massive shifts in their labor markets. Low-skilled workers are especially vulnerable.
Most post-recession job growth (over 99%) has been in jobs requiring more than a high school education. Low-education workers saw little recovery.
Technological innovation and cheap foreign labor have depressed wages for low-education workers, while wages grew for skilled workers. This trend is expected to continue.
Automation may take 55% of low-education jobs, 52% of jobs held by those with high school and experience, and 44% of jobs held by those with some post-secondary education. It may only take 22% of jobs held by bachelor’s/graduate degree holders.
Education costs have risen dramatically in the US from 1997-1998 to 2017-2018 for both public and private colleges. This poses a barrier to college entry and graduation.
The number of freelance/independent contractors has grown significantly as the workforce model shifts. But these jobs offer little security or benefits.
Throughout history, new technologies have displaced jobs but also created new types of work and industries, leading to overall employment growth. However, workers need to migrate between sectors.
Innovation raises long-term productivity and employment but also causes short-term job destruction at the industry level as work activities are automated. Predicting new jobs is difficult.

This passage summarizes the impact of automation on jobs by country and income level using a figure from a McKinsey Global Institute report.

The key points are:

The figure charts GDP per capita in 2030 on the x-axis and the log of GDP per capita on the y-axis for various countries.
Higher income countries like China, Mexico, South Africa and Brazil are likely to see significant but manageable changes to their workforces due to automation. Many jobs will be substituted but also new jobs created.
Middle income countries like Indonesia, Philippines, Egypt, Colombia, Chile, Argentina, Morocco, Nigeria and Costa Rica will face fewer challenges from job disruption and are likely to see a steady creation of new jobs.
Lower income countries like India, Peru, Kenya have larger pools of low-wage workers who face less direct competition from automation in the short-run but will need to develop new middle-income job opportunities.

So in summary, the passage uses an income-level framework to argue that higher income countries will be most affected by automation job disruption while middle and lower income countries may see more job creation in the near future.

Even developed economies have a significant portion of the population with little or no access to financial services like bank accounts. This phenomenon is called financial exclusion.
In the US in 2015, 7% of households lacked a checking or savings account, equating to around 15.6 million adults and 7.6 million children being “unbanked”.
In the EU in 2016, 139 million adults (19% of the population) remained financially excluded. Younger adults aged 18-34 made up a large portion.
Countries with some of the highest rates of being unbanked include Romania, Bulgaria, Slovakia, Hungary and Poland.
Lack of money, lack of need, account fees being too high, and distance from financial institutions were cited as top reasons for being unbanked.
This context sets up an examination in later chapters of how financial technology or “fintech” innovations like microcredit, peer-to-peer lending etc. could help address financial exclusion by providing more affordable and accessible financial services.
Securitization was the belief that pooling high-risk mortgages and dividing them into tranches would reduce overall risk. However, few anticipated that all the underlying mortgages could default.
The mortgages did default in 2007 as house prices fell, making the mortgage-backed securities worthless. This significantly impacted many banks’ balance sheets.
In 2008, major investment banks like Bear Stearns and Lehman Brothers collapsed, along with AIG. Other banks merged to become regulated institutions.
Risky lending practices like no-documentation loans contributed to the crisis. As housing prices rose, standards were lowered to get more people into mortgages.
The crisis had systemic consequences as losses rippled through the financial system. Governments provided bailouts and passed new regulations like Dodd-Frank.
The weakened banking system created opportunities for financial technology (fintech) firms to disrupt the sector through innovations in areas like artificial intelligence, cybersecurity, blockchain, and insurance technologies.
Blockchain technology is being developed for financial trading to make it more secure and decentralized. Some successful initial coin offerings in 2017 included Filecoin ($257M), Tezos ($232M), and Sirin Labs ($157M).
Insurtech combines insurance and technology. Insurtech firms aim to serve both individual/business customers and insurance companies. They use digital technologies to introduce innovations that create new business models, processes, and insurance products.
China has become a major leader in fintech innovation and development. Chinese tech giants like Alibaba, Tencent, Baidu have huge centralized platforms and data that help advance AI research. China’s consumers are also very open to sharing their data.
However, China faces some limitations from limited domestic investment options and restrictions on overseas investments from countries like the US. Still, China’s continued focus on tech adoption and massive platforms could allow it to become a global AI leader.
Online and mobile banking are replacing traditional bank branches. Early online banking faced adoption barriers but growth of e-commerce increased consumer comfort with online transactions. Now banking is dominated by digital and mobile services.
In the early days of online banking, some hackers created fake banking websites or manipulated legitimate banking software to trick consumers into sharing sensitive financial information like credit card details. This allowed hackers to steal money from consumers’ accounts.
Banks responded by improving security measures like digital certificates, SMS payment confirmations, and unique authentication codes. This renewed consumer trust in online banking.
The growth of mobile banking started in 2007 with the launch of the iPhone. By the late 2000s and early 2010s, many consumers were accessing bank accounts and paying bills via mobile apps.
Studies showed consumers increasingly preferred mobile and online banking over visiting physical bank branches for standard transactions.
Major technological trends like big data, algorithms, artificial intelligence, the internet of things, cloud computing and blockchain are transforming banking both for consumers and behind the scenes operations.
Emerging markets in particular are “leapfrogging” traditional banking models and moving directly to digital financial services via widespread mobile phone adoption, bypassing the need for traditional bank branches. This has the potential to significantly increase financial inclusion.
Derbanked consumers in developing economies present opportunities for fintech services due to lack of traditional financial infrastructure. Implementation of fintech will be easier without existing systems.
In some cases, emerging markets have advanced more in fintech due to mobile technologies being introduced without precedents. Africa has led in payments technologies like M-Pesa.
Go-Jek in Indonesia has diversified from transportation into financial services like e-wallets, capturing its large user base. This shows potential in emerging markets.
China has a large and growing peer-to-peer lending market that is regulated by the central bank.
India also has potential for fintech due to its large population, lower banking usage, mobile penetration, and biometric ID system. Demonetization boosted digital payments.
Crowdfunding platforms like Kickstarter allow individuals to fund projects and dreams. Crowdlending platforms like CommonBond and Kiva facilitate lending to students and small businesses. This disintermediates traditional banks.

Lending Club allows individuals to borrow money from other individuals through an online platform. It removes banks from the lending process. There are local field partners who help borrowers through the loan process, though details are not provided. Overall, the passage discusses the rise of alternative financial systems and peer-to-peer lending platforms that provide non-traditional financing options for people overlooked by traditional institutions. However, these platforms still need to build more trust with lenders to become mainstream.

Robo-advisors are artificially intelligent financial advisors that provide investment management services online with lower fees than traditional advisors.
Millennials prefer more flexible work arrangements like freelancing via platforms like Uber, but this creates issues around benefits like pensions and healthcare that traditional employers provided.
As more work as independent contractors, addressing retirement and healthcare needs is an open question governments need to resolve. Requiring platforms to provide 401k-type plans could help freelancers prepare for retirement rather than relying on governments later.
Cultural differences exist between countries in how healthcare and retirement are financed and handled. Robo-advisors could help increase access to financial products worldwide.
Integrating fintech and traditional finance raises challenges around differing corporate cultures but also opportunities through collaboration between banks, startups, and technology firms. Regulators will need to understand and monitor emerging risks from the growing fintech industry.

Here is a summary of the key points about complaints regarding retirement and other benefits for gig workers:

In 2015, Lyft partnered with Honest Dollar to give drivers an opportunity to save for retirement through a retirement savings plan. However, the plan did not require Lyft to pay into drivers’ retirement savings or divert earnings.
In 2016, Uber opened a company-wide retirement plan through Betterment for drivers. The plan started in select cities and expanded nationally. Drivers could open an IRA or Roth IRA for free the first year through the Uber app. This was surprising as Uber claimed drivers were independent contractors, not employees eligible for benefits.
Robo-advisors and digital investing platforms are emerging as cheaper alternatives to traditional financial advisors for millennials and others looking to invest without high fees. Exchange-traded funds (ETFs) in particular allow passive, low-cost investing in baskets of stocks or indexes. As younger generations embrace these fintech solutions, they are opening new doors for wealth management strategies.

Here is a summary of the key points about und man ag ers and robo-advisors:

Between 2000-2010, many active fund man ag ers underperformed their benchmarks and could not cover costs/fees, leading investors to become more interested in lower-cost ETFs.
From 2010 onward, the majority of active man ag ers have continued to underperform benchmarks according to studies. This is often attributed to increased competition, widely shared info, new technologies.
The relative underperformance of active funds has opened opportunities for lower-cost ETFs, which have grown 4x faster than active funds since 2007.
Robo-advisors use algorithms and online questionnaires to provide tailored investment portfolios and financial advice at lower costs than human advisors. This has helped democratize access to financial services.
Robo-advisors typically charge much lower fees than human advisors, ranging from 0-0.5% vs 1-2% for human advisors. They also allocate to lower-cost passive index funds.
By offering lower costs, more accessibility, and convenience, robo-advisors have helped expand financial advice and services to demographics that were previously underserved.
Robo-advisors like Betterment and Wealthfront provide automated investment management for lower fees than traditional advisors. Betterment charges 0.25-0.40% per year, Wealthfront charges 0.25% for accounts under $10,000.
Studies have shown robo-advisors allocate portfolios more heavily to equities than some clients’ risk tolerances may suggest, to generate higher returns. This could backfire in a downturn.
However, returns for robo-advisors like Betterment and Personal Capital have outperformed benchmark portfolios in recent years. Robo-advisors may replace target-date funds by providing more personalized risk assessments.
European robo-advisors tend to charge higher fees than US ones, around 0.40-1% more on average. This may be due to the newer market and differences in regulations across countries.
With advances in machine learning, robo-advisors’ algorithms can increasingly adapt to clients and understand emotions. However, the impact on democratizing finance and reducing inequality remains unclear.
Historically, investment returns on stocks have significantly exceeded short- and long-term bonds. Even small differences in returns or fees over the long-term can significantly impact savings outcomes. This underscores the importance of low-cost investment options.
The graph shows annual rates of return on stocks, Treasury bonds (T-bonds), and Treasury bills (T-bills) from 1928 to 2020.
The l-rate is a three-month rate and represents Treasury bills.
The Treasury bond return is based on the constant maturity 10-year Treasury bond. It includes both coupon (interest) payments and price appreciation.
The graph displays the compounded value of $100 invested in each asset class over the period shown.
Older workers have had to increasingly manage their own retirement investments through 401(k) plans and IRAs rather than traditional pensions. However, not everyone is well-equipped to do this effectively due to lack of financial literacy and high fees.
Robo-advisors have the potential to democratize access to wealth management by providing low-cost financial services to lower- and middle-income individuals. This could help reduce the wealth inequality gap over time.
Countries like India and Estonia have made significant progress in digitizing public services and governance through systems like Aadhaar (India’s biometric ID program) and e-Residency (Estonia’s digital identity program). This allows things like welfare benefits, taxation, business registration, and banking to be managed entirely online.
Governments are adapting to changes brought by the digital economy and platforms like the challenges of taxing digital/e-commerce businesses and income from the peer-to-peer economy. New approaches to taxation are being considered.
Cryptocurrencies also pose challenges as they bypass traditional banking intermediaries. Governments need to understand the consequences and risks of these new digital technologies.
Potential benefits of digitization include more efficient delivery of social services, increased tax compliance, tools for a more progressive tax system, and improved access to government services for citizens.
E-government aims to use digital technologies to improve public services and make them more accessible through various channels like websites, mobile apps, etc. It involves themes like centralization of citizen data and simplifying/automating back-end government processes. Many countries are progressing in digitizing documents and processes.
Governments are increasingly digitizing and dematerializing processes like ID cards, passports, voting, tickets, tax declarations through electronic and online systems which integrate with databases and biometrics. This could eliminate need for physical documents.
Centralizing information at government levels through digital services, algorithms, robots can replace in-person government agency services.
Governments are automating, digitizing processes within legal, police, fines, records systems to simplify for citizens. Examples like electronic toll collection.
Four stages of dematerialization: online info, downloadable forms, online fillable forms, fully online applications.
Digitization requires overhaul of info systems and relationships with other organizations. Provides more accessible and transparent services.
Barriers to faster adoption include costs of transition, lack of skills, fear of job losses for civil servants.
Advanced economies often lead in digital government. Top scorers are Denmark, South Korea, Estonia, Finland, Australia, Sweden, UK, NZ, US, Netherlands.
UAE/Dubai and Singapore positioning as leaders through initiatives like Smart Dubai and Smart Nation programs integrating data and services.

The article discusses how Singapore and Dubai have successful digital government models according to a World Economic Forum report. Singapore in particular was able to effectively contain the 2003 SARS outbreak through systematic contact tracing, testing, and enforcement of quarantines using digital tools like CCTV and temperature checks.

It then examines how blockchain technology, commonly used in banking, could benefit governments in areas like improved data sharing between agencies, reduced data errors, automated reconciliation processes, and safer distribution systems for funds. Examples of government blockchain initiatives in the UK, Estonia, and Dubai are provided.

The article also discusses how peer-to-peer platforms have grown significantly but remain largely unregulated, potentially eroding tax revenue and creating unfair competition. It argues that for governments to adapt, taxation in the peer-to-peer economy needs to be simplified, such as by potentially leveraging blockchain for more transparent reporting of small business transactions on these platforms.

Here is a summary of the provided paragraph:

Blockchain is a good tool for governments to gather data from platforms and aggregate the data for an individual without compromising privacy. Blockchain can improve collaboration between platforms and authorities, and therefore help to create an efficient tax collection system for individual transactions. The platforms could use blockchain to directly report and levy taxes. This could help overcome issues like tax erosion by forcing platforms to cooperate through a blockchain system. Money saved by using blockchain could then be used for benefits like social security, welfare, and pensions for freelance workers.

Globalization and increased trade between nations over the last century has improved living standards and reduced poverty rates globally. However, it has also contributed to growing inequality within many countries.
Technologies like automation have accelerated globalization by enabling the offshoring of manufacturing jobs to lower-wage nations. This has increased workforce competition internationally.
Between 1980 and 2016, over 1 billion people were lifted out of extreme poverty, especially in China and India as their economies grew rapidly. However, inequality also increased within these nations.
Most wealth generated in emerging markets over the last few decades has been captured by the richest 1% within countries, while the bottom 50% saw little gains. Growing inequality is a concern if not addressed.
As the income share of a country’s top 20% increases, overall economic growth is expected to decline in the midterm. However, an increase in the income share of the lowest 20% is associated with increased GDP growth.
Inequality, as measured by the Gini coefficient, has risen in many developing countries as their economies have grown. Higher inequality often accompanies the shift from agriculture-based to service-based economies.
The large productivity gap between agriculture and service sectors contributes to inequality in “dual economy” countries where these sectors coexist. Financial inclusion and development are associated with lower inequality.
Countries face challenges transitioning away from agriculture, including developing infrastructure, education, and healthcare. Investments in these areas can help increase mobility out of poverty and support the transition to industrialized economies.
Financial technology can help reduce inequality in emerging economies without major economic restructuring by expanding access to financial services. This “financial deepening” is linked to lower inequality.
Fintech has the potential to boost financial inclusion, productivity and incomes in emerging markets, helping lift more people out of poverty. It can facilitate the transition to formal, taxable economies.
Studies show fintech adoption improves risk-taking, and the benefits are greater for more risk-tolerant individuals and in areas with lower financial services coverage.
Emerging markets can adopt fintech without disrupting existing infrastructure, allowing them to leapfrog expensive systems in wealthier nations.
Fintech can address inequalities by facilitating access to credit, savings options, risk management tools, reducing information and transaction costs, and lowering product/service costs.
Case studies in South Africa and China show the limitations - South Africa has a developed financial sector but high exclusion, while China leads in banking but lags in credit access, especially in rural areas.
Financial inclusion does more than economic advancement - it can also improve social and physical well-being by reducing stress from financial deprivation and inequality.

So in summary, fintech has strong potential to boost inclusion and development in emerging markets, but case studies show challenges remain in fully realizing these benefits and addressing continuing inequalities.

In the past, China had a very constrained credit system with strict requirements for formal loans. This led to growth of informal lending and shadow banking.
However, China has since become a global fintech leader, with companies like Alibaba and WeChat revolutionizing lending through digital loans and data analytics. This has helped small businesses overcome barriers to traditional credit.
Colombia reduced poverty and inequality through wealth redistribution, income growth for the bottom 40%, and increased financial inclusion initiatives like expanding rural banking access.
For fintech to thrive in emerging markets, infrastructure like widespread mobile phone ownership is needed. Governments can also leverage data, like India’s Aadhaar identity program, to improve public services and inclusion.
Data is a key asset for fintech companies as it allows customization and improving consumer experiences. Companies with large data holdings have significant market power.
Governments can also utilize data positively, as India does with Aadhaar, to foster inclusion, reduce fraud, and streamline social benefit delivery. A unified digital identity was needed to overcome India’s barriers to proof of citizenship.
Aadhaar was a revolutionary program in India that created a biometric digital identity database of over 1.2 billion people, the largest such system in the world.
It allowed for quick and efficient enrollment processes using portable equipment like laptops, iris and fingerprint scanners. Enrollment was conducted in local languages.
Individuals had to provide proof of identity, address, and date of birth. For those without birth records, self-reported dates were accepted. Data was checked against existing IDs to prevent duplication.
Aadhaar helped link citizens to various government services like subsidies for education, healthcare, food, fuel and jobs. It reduced leakage and improved delivery of services.
It was also linked to Know Your Customer banking norms to simplify opening of bank accounts. Over 6 million bank accounts were opened in this way.
Aadhaar helped curb abuse of fuel subsidies by preventing creation of fake accounts and identities.
While it made progress, communicating and registering homeless populations proved difficult given lack of access to traditional media.
The system was designed to process extremely high transaction volumes, far more than any other biometric identification system.

So in summary, Aadhaar was a massive and revolutionary digital identity project in India that helped improve access to services and reduce leakage, though challenges remained with harder to reach groups.

The passage summarizes that individuals’ and families’ financial needs evolve over their life cycle, as shown in Figure 6.1. It discusses the key financial needs at different life stages:

Money transfers are often needed initially for remittances, payments, etc.
Savings and investment become important for building wealth and resilience against financial shocks.
Credit is needed to finance human/business capital for things like education, healthcare, businesses, agriculture.
Insurance is important to protect against risks like death, illness, disasters that low-income households face without protection.
Pensions and social security are important for reducing inequalities in old age and preventing burden on families of elderly dependents.

It discusses how access to formal financial products and services can help households progress to increased wealth, while lack of access can trap them in poverty through debt cycles and downward poverty spirals. The key financial needs evolve over an individual’s life cycle from basic transfers to more complex needs for credit, insurance, savings and pensions.

Natural disasters often ruin the agriculture and capital of low-income rural populations, making them destitute.
The primary factor limiting access to insurance is cost. Insurance companies often operate at a loss serving low-income rural customers due to the risks and barriers.
The most vulnerable groups that are financially excluded include the homeless, disabled, elderly, religious minorities, and lower castes. Women and migrants also often lack access to formal financial services.
Fintech innovations have the potential to improve financial inclusion by reducing transaction costs, increasing access through mobile technologies, and better meeting the needs of underserved groups through customized financial products and services.
Some studies have found a positive correlation between financial inclusion metrics like bank account ownership and economic growth indicators like GDP per capita. However, determining the causal relationship is challenging and more research is needed.
Fintech deployment can lead to greater inclusion by offering lower-cost financial solutions that align with people’s real-world needs, especially through mobile and digital platforms. This can help boost inclusion and economic participation.
Traditional financial institutions have found it challenging to offer services that meet the needs of underserved populations, particularly in rural areas. Physical bank branches are costly and not practical in less populated regions.
Fintech has helped unbundle core financial functions and enable new players like payment services, peer-to-peer lenders, and robo-advisors to enter the market. This increases pressure on existing banks to adopt new technologies and improve services.
Fintech increases the speed of processing transactions, allowing higher transaction volumes and new service offerings. It reduces the need for physical bank branches, making financial services available more conveniently.
Digital payment solutions from fintech help multiply the scale and scope of e-commerce, reaching remote populations at reduced costs for buyers and sellers.
Most emerging markets rely heavily on cash transactions. Moving to digital payments can help more people enter the formal financial system and improve transaction efficiency while reducing vulnerabilities of cash.

So in summary, fintech is helping to address the challenges traditional financial institutions face in serving underserved populations by unbundling functions, increasing speeds, expanding access through digital platforms, and transitioning markets from cash to digital payments.

Here is a summary of the key points about lion mobile phone usage:

Mobile phone ownership is widespread among unbanked populations globally. About two-thirds of the 1.7 billion unbanked adults in the world own a mobile phone.
In many developing countries, over half of unbanked adults own a mobile phone, indicating the potential for mobile phones to advance financial inclusion.
Technology has enabled basic transactions over even simple, text-based mobile phones, reducing the need for branch banking. This has powered the spread of mobile money accounts in Africa.
Fintech has achieved significant adoption levels in emerging markets like China and India due to larger tech-literate populations and ability to reach the financially excluded.
Growing mobile phone and internet connectivity in developing countries provides fertile ground for expanding mobile-based financial services. But it requires things like reliable infrastructure, technology solutions, willing financial institutions, and enabling regulation.
Payments have been a leading area for customer adoption of fintech services in emerging markets via mobile wallets and remittances. Examples of successful payment companies like Paytm in India are provided.
Paytm started in India as a digital payments platform with low/no fees for moving money around its platform. However, it charged 2-2.5% fees when users transferred funds to/from banks.
By 2016, Paytm was processing 5 million transactions daily through 1.14 million offline merchants. Transactions and merchants continued growing through 2018.
In 2015, Paytm received a license to become a “payment bank” offering savings accounts and other banking services to previously unbanked customers.
M-Pesa launched in Kenya in 2007 as a popular mobile money transfer service. It enabled financial inclusion even for those in poverty by allowing money transfers and payments with basic mobile phones.
M-Pesa expanded rapidly and had significant positive economic and social impacts in Kenya through increased money circulation, transaction ease, food/business security, and financial inclusion especially in rural areas.
Peer-to-peer lending platforms help connect small savers and borrowers, assessing creditworthiness through alternative data to serve previously underserved populations and filling gaps left by traditional banks.

Here is a summary of the key points about unbanked people from the passage:

Many people in developing countries like India and parts of Africa do not have bank accounts or access to traditional financial services due to minimum balance requirements and documentation barriers.
Fintech platforms like Paytm in India have helped address this by offering savings accounts without minimum balances and making deposits and investments easy without needing specific instructions.
Their large user bases also allow them to use data to match lenders and borrowers and operate peer-to-peer lending marketplaces.
E-commerce platforms like Alibaba and WeChat Pay have also expanded access to financial services for unbanked populations by offering mobile wallets for purchasing goods and services online.
This has been particularly helpful in bringing small businesses and rural populations in places like China and parts of Africa into the formal financial system by enabling online sales of local products.
Case studies of companies like Paytm, Alibaba, and Jumia in Nigeria show how fintech can leverage technology, data, and partnerships to bank the unbanked at scale through payments, lending, and integration with e-commerce.
Alipay is China’s largest digital payment platform, with over 1 billion users and processing 80 million transactions per day.
In addition to payments, Alipay offers mobile wallets, asset management, investments/financial products, credit, and basic banking services through its MYBank subsidiary.
Alipay aimed to increase financial inclusion in rural China left behind by urbanization. This contributed to higher incomes and growth in local economies.
Financial inclusion gaps between developed and underdeveloped areas of China narrowed significantly from 2011-2015 due to Alipay’s services.
Alibaba expanded Alipay’s model to Southeast Asia through its acquisition of Lazada, introducing services like payments, partnerships for shipping/entertainment, and strengthening Lazada’s digital ecosystem.
The passage discusses the evolving role of governments in tandem with economic development, from minimal states to developmental to welfare states, and the relationship between government spending and growth.
Today, 39% of the global population lacks access to adequate health care, with low-income countries reaching an exclusion rate as high as 90%. Nearly half of pension-eligible populations do not receive pensions, leaving them vulnerable to poverty.
Lack of comprehensive social security coverage is particularly damaging in low-income countries, where over 700 million workers labor in the informal economy and live on less than $1.25 per day.
Most emerging economies now have larger elderly populations than past generations. Labor contracts are often informal, and income/wealth inequality are high. Countries like China and India face challenges in providing social services and pensions to vulnerable groups due to lack of coverage.
Pensions are important for reducing poverty, accumulating domestic savings, redistributing risk/income, and supporting household efforts through retirements. However, shortfalls in coverage increase inequalities in places like China and India.
While some governments have introduced effective non-contributory social pensions, universal coverage and financial sustainability can be issues. Financial infrastructure is also needed to effectively distribute social services.
Factors like low citizen identification rates and corruption hinder redistribution efforts and leave many excluded from social systems. Fintech can help solve these issues through digital payments and improving inclusion.

Here is a summary of the key points about blockchain and its potential applicability to governments and financial inclusion:

Blockchain utilizes distributed ledger technology to create “decentralized trust” without the need for a single intermediary. This can fundamentally change the nature of transactions across sectors.
It has the potential to be cheaper, safer, and easier to use for all participants compared to traditional financial systems that store data privately within institutions.
It could help create legal identities, immutable property titles, portable medical records, and enable smart contracts to be executed without intermediaries. This could benefit low-income populations.
Projects like the Building Blocks digital wallet for refugees demonstrate how blockchain could provide digital wallets for citizens containing ID, financial accounts, and transaction histories.
Government-to-person fintech applications like benefit payments could help enroll more underserved people in social programs while reducing costs, potentially incentivizing governments.
Digitizing government payments could significantly increase bank account ownership and financial inclusion. However, the technology ecosystem needs to support easy account access without exploitation.
Cooperation between governments and banks is important to realize the potential of financial technology and drive momentum for electronic payments systems. Issues around sudden policy changes also need to be handled carefully.
Fintech innovations have the potential to help low-income citizens access public services like social welfare, pensions, and healthcare more easily through online platforms. Providing a “pensions dashboard” could increase transparency.
As governments digitize payments, more people will be able to receive benefits digitally. Globally, around 2% of account holders still receive payments in cash.
Delivering social security payments like pensions digitally could encourage millions more people to enroll in programs.
Developing effective government fintech initiatives requires certain conditions - things like reliable electricity, integration with the existing financial system, a demand-driven online market, smart regulation, a digitally literate population, and government assistance in building the ecosystem.
Fintech regulation presents challenges due to fintech spanning multiple sectors, but regulation is still needed to promote stability and trust in the financial system. International evidence suggests greater financial inclusion leads to more bank stability. Cooperation between government and the private sector is important.
The transition from physical cash to digital currencies and payments has been a gradual process over the past century, accelerated in the last 30 years.
Historically, commerce began as barter dating back to 6000 BCE. Currencies like coins emerged around 1000 BCE to facilitate trade and address limitations of barter.
Precious metal coins became the dominant form of currency for millenia, enabling portability, fixed pricing, and value storage. Checks and credit/debit cards were 20th century innovations that began digitizing money.
Mobile payments exploded in the 2000s, allowing digital transfer of funds without physical cash. Digital currencies also emerged, like Bitcoin.
While some countries have tried removing large bills and pushing digital, fully replacing cash habits may take longer than expected due to cultural preferences and trust issues with digital alternatives.
Regulation aims to balance economic benefits of fintech with financial stability and consumer protections as the landscape becomes more complex with new technology and legal tender options. Ethics around data use and over-indebtedness are also important to consider.

The key points are the gradual historical transition from physical to digital currencies/payments over centuries, accelerated changes in the 20th-21st centuries, and the ongoing tensions between pushing digital usage versus cultural preferences for cash in some contexts. Regulation seeks to manage this complex landscape.

Paper money and banknotes were first developed in Europe in the 17th century during a period known as the “price revolution” when large amounts of silver and gold entered Europe from Latin America. Banks issued payable receipts or notes to depositors.
Over time, many towns established local banks that issued their own banknotes which circulated locally before national currencies emerged.
The US dollar began circulating globally after WWI and has played a major role in shaping the global economy, though it has also facilitated illegal activities due to large denomination bills.
Modern credit cards originated in the 1950s with cards like Diners Club that were initially made of cardboard and allowed holders to pay for entertainment and travel expenses. Demand grew as the IRS required detailed expense records.
Plastic credit cards launched in the late 1950s and major card brands like Visa and Mastercard were established through partnerships between banks.
Mobile payments started gaining traction in emerging markets in the 2000s to facilitate financial access, while smartphone-based payments like Apple Pay launched in advanced economies in 2014.
Cryptocurrencies emerged in the 2010s following concepts from the late 20th century, with Bitcoin launching in 2009 and gaining momentum through the 2010s as other cryptocurrencies also launched.

So in summary, various financial innovations over centuries have helped establish modern currencies and payment methods that move resources all over the planet through banknotes, credit cards, mobile/digital payments, and cryptocurrencies.

Enables payments vis-

Samsung Pay, PayPal

(payments apps/services)

U.S. only

a-vis voice assistants such as Alexa and Siri Cash App (Square)

Venmo, PayPal

Interoperability between mobile wallets, fund transfers, etc.

Data

Full PII data (names, addresses,

Limited PII due to GDPR. More

collection

bank accounts)

anon on device data

Fees

Venmo: No merchant fees but

Apple Pay/Android Pay/ Google

charges a small transaction fee

Pay: 0.15% per transaction

when using a debit card

charged to merchant

Cross-

Venmo allows cashing out to a

Cross border remittances, P2P

border uses

bank

transfers emerging

Cash App allows Bitcoin purchase

Apple Pay, PayPal enable global checkout on merchant sites

Growth

50% annually

Apple Pay use doubled YoY in

drivers

Fueled by peer to peer payments

Growth drives by checkout convenience and merchant adoption

Consumer

Originated as P2P apps, now

Core focus remains digital wallets

proposition

integrating BNPL, checking,

and payments while exploring

investing and additional

new services (loans, checking etc.)

financial services Regulation

Characterized as unregulated

Subject to payments regulations in

digital wallets to comply with GDPR

each jurisdiction where operate

can also pay for items on their phones in-store through the app even if they do

not have registered Starbucks cards.

A third and final type of player in the consumer front office is the fintech uni-

corns that provide payments as a service on top of more sophisticated platforms.

The two dominant players here are China’s Alipay and WeChat Pay, followed by

global leaders like PayPal. These platforms have built very efficient yet complex

national and global payment ecosystems through sophisticated apps that incor-

porate payments, remittances , investments and a variety of financial services.

Alipay and WeChat Pay have leveraged their ubiquity in China to become

Toward a Cashless Society 153

essential infrastructure for Chinese daily life and commerce. They continue to

expand globally through partnerships with merchants and banks. Global players

like PayPal have replicated a similarly integrated model worldwide through scale

and extensive merchant acceptance networks. Key distinctions between these

categories are size, data collection practices and cross-border reach as highlighted

in Table 8.1.

Operations Back Office: From Cards to Real-Time Payments

The operations back office involves the actual processing and settlement of pay-

ments. Historically this took place through physical card networks like Visa, Mas-

tercard and American Express. However, new payment methods have emerged:

First, real- time payment schemes launched since 2010 now enable near-

instant fund transfers between bank accounts using only account numbers and

recipient identity details like phone numbers or email addresses. Real-time gross

settlement further facilitates near real-time settlement of transactions between

banks. In many countries, faster payments (not quite real time) have been

mandated and became the universal standard for domestic transactions.

Second, card networks have adapted their infrastructure for faster settlement

and additional services like tokenization, which masks card details behind device-

specific tokens to enhance security. They have also diversified into alternative

payment methods like person-to-person payments.

Third, non-bank digital wallets have emerged as infrastructure plays in their

own right by aggregating funds, enabling payments as well as offering additional

value-added services. Examples are digital wallets operated by telecom compa-

nies like China’s Alipay and WeChat Pay as well as global leaders like PayPal.

Fourth, cryptocurrencies are gaining traction in some use cases as alternate

payment rails, though mainstream merchant adoption remains limited.

Overall, these trends are gradually decentralizing payments infrastructure

away from physical cards towards digital, multi-rail and real-time systems. This

transition is still ongoing and creates winners as well as disrupted incumbents in

the process. However, the bulk of underlying infrastructure still involves financial

institutions or fintechs regulated as financial institutions. Complete decentraliza-

tion beyond centralized entities remains niche for now.

The Pace of Change

Will cash disappear in 10 years? Unlikely. Cash currently accounts for 25-30% of

transactions in major developed economies and is still widely used in certain

industries like casual dining, brick-and-mortar retail stores and grocery shops. It

also remains prevalent in developing markets and among certain demographics

like the unbanked, elderly and those preferring anonymity.

However, cash usage has been steadily declining and digital payments

154 Democratizing Finance

growing. Post COVID-19, hygiene concerns may accelerate the shift away from

cash further. Below are some predictions on the pace of change:

By 2025, less than 10% of transactions are expected to be in cash in developed

markets like Sweden, Netherlands, China, South Korea. The US and Germany may

still have 15-20% cash usage while Italy and France remain above 20%.

Plastic cards will likely be displaced first before cash. Younger consumers are

already comfortable with contactless payments from phones. Nearly 75% of card

payments in Europe are expected to be contactless by 2025.

Digital wallets will overtake cash for payments below $25 by 2022 in developed

countries according to McKinsey. We also expect e-wallets to surpass cards as the

second most used payment mode behind debit/credit cards globally by 2025.

Cryptocurrencies may gain more traction for niche use cases like remittances,

though mainstream adoption is still 5-10 years away pending regulatory clarity.

Developing markets will transition but cash will persist longer given infrastructure

gaps. However countries like India and China could transition rapidly to digital.

So in summary, while cash may not disappear anytime soon, digital payments

are disrupting existing payment models rapidly, led by mobile wallets and real- time payment infrastructures. The transition will be variable across regions but cash usage rates below 10% of transactions seem achievable in most developed markets within this decade. Plastic cards also face an existential threat from the smartphone.

Here is a summary of the key points about payment infrastructure from the passage:

There are three main types of payment infrastructure - overlay systems, standalone systems, and global/domestic platforms.
Overlay systems build customer interfaces on existing payments infrastructure like credit cards or banking systems.
Standalone systems are closed-loop systems that process, clear and settle payments independently without other systems.
Global platforms provide payment services across jurisdictions, while domestic platforms operate within a single jurisdiction/region.
Major existing global overlay systems include PayPal, Alipay, M-Pesa, WeChat Pay, and Swish. Proposed global platforms include Diem and Novi.
Infrastructure involves two main steps - the customer interface and back-office operations to authenticate and transfer payments between banks and accounts.
New technologies like distributed ledgers and cryptocurrencies could disrupt existing card providers by enabling faster peer-to-peer payments.
Peer-to-peer payments and e-wallets allow direct transfers between individuals without card platforms as intermediaries. Cryptocurrencies also enable peer-to-peer transactions without banks or cards.
These emerging payment methods could disrupt the traditional arrangement of card platforms connecting consumers and businesses. If widely used for merchant payments, they could bypass the role of businesses that provide consumers with cards.
Dematerialization of payments is gaining momentum, with contactless payments on devices like cards, phones, and watches growing in popularity. Digital wallets are also incentivizing less use of physical cash and cards.
In emerging markets, digital wallets are replacing cash rapidly as many bypass cards altogether. In developed markets, cash and cards are still prominent but digital wallets are expected to become primary within 5 years.
Competition is intensifying globally among payment platforms seeking to digitally intermediate all transactions. China in particular has seen massive growth in mobile payment platforms Alipay and WeChat Pay, which have become deeply ingrained in commerce and everyday life.
Mobile payments are very popular in China, with over half of citizens planning to use them more often. Only 10% expressed privacy concerns due to China’s view that honest people have nothing to hide.
Some Chinese stores only accept mobile payments now. This led the central bank to clarify that cash should still be accepted as legal tender.
Asia has seen people skip cards and move directly from cash to mobile payments due to convenience.
Major tech companies hope Western countries can emulate China’s fintech usage, but it’s harder due to ingrained habits in legacy credit card systems. Younger populations are more open to new technologies.
The payments landscape is competitive between smartphone companies, social media platforms, payment processors, and banks. Convenience is the top customer priority.
E-commerce platforms have an advantage currently due to most online sales occurring on desktop. Mobile payments are more convenient for physical stores.
Payments companies must identify value propositions for both customers and merchants to convince them to use their services over others. This will be an important factor in who emerges as the long-term winner.
Digital currencies like Bitcoin have gained significant attention in recent years, especially after Bitcoin’s price surge in 2017, but overall adoption rates remain relatively low. Cryptocurrencies are seen more as speculative investments rather than mainstream payment methods.
Younger generations are more open to cryptocurrencies compared to older generations. A survey found millennials had more positive views of cryptocurrencies and were more likely to have bought/sold cryptocurrency. Older individuals had more concerns about volatility, complexity, and were more distrustful.
Cultural factors also influence adoption rates. In Western countries with an emphasis on privacy, cryptocurrencies are appealing due to their anonymity. However, in countries like China where privacy is less valued, convenience of digital payment methods is prioritized over privacy.
For cryptocurrencies to become truly mainstream, they will need to gain acceptance from major payment platforms, retailers, achieve price stability, and see mass adoption spurred by a major company or government. China launching a digital yuan could be a catalyst for this.
Surveys found Americans (11%), British (21%), French (29%), Germans (42%), and Italians (19%) expressed more concerns about anonymity and traceability of cryptocurrencies compared to just 10% of Chinese. As knowledge of crypto/blockchain increases globally, the tension between privacy and convenience may diminish.
One factor impacting widespread crypto adoption is energy consumption from “mining”. Bitcoin mining uses as much electricity as all of Pakistan or the Netherlands annually. However, capital in crypto could drive green tech innovation. CBDCs and coins like Diem don’t require mining.
For mainstream usage, crypto needs widespread acceptance by businesses. PayPal and Visa/Mastercard are integrating crypto to help with this. Government agencies are also providing guidance to help banks get involved.
Price volatility is a barrier - Bitcoin value can fluctuate dramatically daily/weekly unlike stable currencies. This makes it difficult for usage as a currency. Stability is needed for things like mortgage loans denominated in crypto.
Bitcoin was first introduced in 2009 and began rising in popularity in 2013 when its price spiked over $1,200, marking its first major price increase.
Between 2015-2019, over $1 billion was invested in cryptocurrencies like Bitcoin and blockchain startups.
While cryptocurrencies like Bitcoin see wild price fluctuations that make them unsuitable as stable stores of value, newer “stablecoins” try to address this by pegging their value to existing assets like commodities or fiat currencies.
Major corporations are hesitant to adopt cryptocurrencies for payments due to regulatory uncertainty. However, regulators globally are working to establish comprehensive frameworks, with the EU targeting regulations in late 2022/early 2023.
governments have concerns about risks like market manipulation, security, and cryptocurrencies enabling financial crimes. No cryptocurrency will become widely used without regulatory approval.
The case of Facebook’s proposed Diem currency (formerly Libra) illustrates governments’ worries that large private stablecoins could compete with sovereign currencies and monetary control. Facebook had to significantly revise Diem to address these concerns.
The Diem Reserve would hold low-risk, highly liquid assets to protect the value of Diem during an economic downturn or bank run.
The Diem Association has continued expanding, recently adding members like Shopify, Tagomi, Heifer International, and Checkout.com.
In 2020, Diem applied for a payment license from FINMA, demonstrating a willingness to be regulated. The license has not yet been granted.
Facebook aims to increase ad revenues and provide payment solutions to the unbanked with Diem. Its digital wallet Novi is planned for rollout in late 2021/2022 but has not been released yet.
Novi could become a major payments platform capturing fees, with the potential to expand into loans, credit transfers, etc. given Facebook’s large user base.
Central banks are exploring sovereign digital currencies (CBDCs) that could function like physical currency but in a digital format without intermediaries. Motivations include financial stability, monetary policy, inclusion, and efficiency.
CBDCs could take retail or wholesale forms. Design choices around accessibility, security, simplicity, privacy, cross-border functions will shape CBDCs.

Here is a summary of some key advantages of a central bank digital currency (CBDC) compared to the current reserve system:

For end users:

Increased privacy and security of payments by reducing third party handling of personal data
Improved efficiency of securities settlements and reduced associated costs through immediate clearing/settlement using distributed ledger technology
Potential for more stable currency value, especially in emerging economies, through indexing the CBDC value to inflation

For central bankers:

Ability to set negative interest rates without risk of cash hoarding if CBDC replaces physical cash
Increased ability to conduct monetary policy using interest rates as primary tool instead of unconventional tools like QE
Potential to enhance banking sector competitiveness by allowing individuals to hold interest-bearing accounts directly at the central bank, reducing need for deposit insurance and bailouts

Overall, proponents argue a CBDC could modernize payment systems, increase financial inclusion, and provide central banks with greater control and flexibility over the monetary system. However, there are also technological, operational and legal risks that would need to be addressed for widespread adoption. Most central banks are still researching and piloting CBDC options.

Many central banks are exploring or piloting central bank digital currencies (CBDCs) to modernize payments systems and financial infrastructures.
The leaders so far are the Bahamas, which launched a nationwide CBDC called the sand dollar in 2020, and China and Sweden, which have been piloting CBDCs.
Other major economies following include the Eurozone, Japan, UK, and US, which are all in earlier research/pilot phases but have not decided on a full CBDC launch yet.
Cultural factors like privacy preferences and interest rates impacting cash usage will influence consumer adoption rates of CBDCs in different countries. China may see faster adoption due to existing habits and demographics.
Technical challenges around performance, scalability and offline usage need to be addressed. Impact on monetary policy and financial stability is also being studied.
The goal of most CBDC projects is to complement existing payment methods like cash and reserves, not replace them, by providing a third digital option available to all citizens and businesses.
China has become a leader in digital payments, with 86% of internet users using online payment services in 2020 compared to just 18% in 2008. 85% of Chinese adults who shop online also pay online.
The People’s Bank of China began researching a central bank digital currency (CBDC) in 2014 to replace cash and improve financial inclusion. Testing of the digital yuan (e-CNY) began in 2020.
The e-CNY will be centralized, issued from the central bank to commercial banks and users. It allows tracking of all transactions for regulatory purposes while also claiming to provide controlled anonymity for normal users.
China aims to use the 2022 Beijing Olympics to promote the e-CNY globally. It hopes to challenge the US dollar’s dominance in international finance and payments over the long run through innovations in payments technology.
A successful CBDC poses risks of “disintermediating” commercial banks by allowing people to hold funds directly at the central bank rather than in bank accounts, impacting banks’ deposit balances, income sources, and financial stability. Central banks and commercial banks are exploring solutions to this challenge.
The passage discusses six major trends that are disrupting the financial services industry: 1) online distribution of services, 2) automated back-office functions, 3) artificial intelligence upending strategic jobs, 4) movement of branch activity to smartphones, 5) revolution in digital payments threatening credit cards, 6) cryptocurrencies disintermediating central and commercial banks.
It argues that policymakers should learn from past financial crises to avoid future mistakes. Specifically, it recommends regulating early to prevent subprime lending, ensuring responsible lending practices, and limiting the power of new fintech companies to avoid pushing people into unsustainable debt.
The COVID-19 pandemic may accelerate the move to digital payments mainstream adoption.
If handled correctly, the fintech revolution has potential to significantly improve life in advanced and emerging economies by increasing access to financial services.
However, policymakers need to ensure the benefits are widespread rather than just benefiting a few “winners.” Overall trends are deeply disrupting the financial services industry through technologies like online banking, automation, AI, digital payments and cryptocurrencies.
The passage discusses the growth of digital payments and fintech companies, and calls for greater regulation and monitoring to protect consumers.
It warns that companies are using big data and algorithms to aggressively promote financial products like loans and investments, sometimes pushing vulnerable people into risky debt.
Regulators need to monitor companies’ data collection, algorithms, and marketing campaigns to prevent exploitation and ensure fair treatment.
Fintech startups in particular lack regulations, so consumers have little recourse if these companies fail or mismanage accounts.
The COVID-19 pandemic is accelerating the transition to cashless digital payments due to fears that cash and cards can spread the virus. This will further fuel demand for central bank digital currencies.
Overall more regulation and oversight is needed as financial technologies advance to avoid harmful consumer outcomes and systemic financial risks.
The early drafts of the first COVID-19 stimulus bill in the US considered creating digital dollar wallets but later discarded the idea. Digital dollar wallets would have allowed Americans to receive and spend stimulus funds directly through a digital payment system rather than physical checks.
However, the concept of digital dollar wallets ran into political opposition and was removed from subsequent drafts of the stimulus legislation. Critics were wary of the government directly distributing money digitally to Americans in this way.
As a result, the final stimulus bills instead relied on physical checks or direct deposits to bank accounts, rather than pioneering a new digital dollar wallet system run by the US government. The idea of a digital dollar or cryptocurrency issued by the Federal Reserve remains an ongoing concept but was too novel and controversial to implement for COVID relief at that time.
In developing countries, many people work in informal jobs and are paid in cash, making it difficult to open traditional bank accounts. Bank transfers are also expensive for small amounts.
People often rely on risky alternatives like minibus drivers to transport money, and funds often get lost.
Fintech is helping address this through services like M-Pesa in Kenya. M-Pesa allows people to open accounts with just an ID and phone number. It saw much higher adoption than expected.
Lack of infrastructure also makes distributing social services difficult, as many lack IDs, addresses or bank accounts. Blockchain has helped reduce costs for aid programs.
Recommendations for developing countries include digitizing IDs, partnership between government and startups to expand digital infrastructure to rural areas, and using fintech to help deliver government services.
New technologies could lead to more integrated digital banking services available through a single app, more efficient government administration using blockchain, greater adoption of digital and cryptocurrencies, and challenges to existing tax systems from remote work and the gig economy.
Increasingly, cash is facing challenges from digital payment methods like credit/debit cards, mobile wallets, and digital currencies.
As digital payments become more widely adopted and preferred by the public, especially younger generations, the role and importance of cash in everyday transactions is declining in many countries and contexts.
This shift away from cash towards digital will increasingly challenge the traditional ways in which governments regulate currencies and monetary policy. Governments rely on tools like interest rates that may become less effective in a largely cashless economy.
With less control and visibility over currencies, the capacity of governments to effectively conduct macroeconomic policy and stabilize their economies may be diminished.
Overall, the trend away from cash and towards digital/crypto currencies poses oversight and policy problems that governments have yet to fully address or develop new approaches for. This new digital context challenges the traditional models of how governments operate monetary systems and achieve policy goals.

This table summarizes survey results from Deutsche Bank Research about preferences for digital and contactless payments in various countries:

France, Germany, Italy, UK, US and China showed varying preferences for dematerialized (digital) payments over cash and checks. Support for dematerialized payments was highest in China (79%), followed by France (79%) and lowest in Germany (40%).
Contactless card payments (using chip and pin cards) were most preferred in France (57%), followed by the UK (49%) and least preferred in China (16%) and the US (17%).
Digital wallet usage (on phones and watches) was highest in China (50%) and lowest in Germany (7%).
Most countries showed strong intentions to increase usage of digital wallets and contactless cards for small purchases in the next 6 months, especially Italy, France and the UK.
Reasons for preferences included convenience, time savings, security and the perception that retailers are going increasingly cashless.

So in summary, the data shows differing levels of openness to dematerialized payments across countries, with China most digitally oriented and Germany least, while contactless cards are very popular in Western Europe led by France.

The data comes from a 2020 Deutsche Bank research report on digital currencies and payments.
It shows the demography of citizens in different countries who have personally bought or sold cryptocurrency in the last 12 months.
18-34 year olds are most likely to have engaged with cryptocurrency, with 29% in China, 14% in Italy and France, and 12% in Germany reporting buying or selling cryptocurrency.
35-54 year olds are next most likely, ranging from 26% in China to 4% in the UK.
55+ year olds are least likely, with maximums of 8% in China and 1% or less in other countries.
Overall, the highest rates are in China at 26%, followed by Italy at 7%, France and Germany at 6%, the US at 7%, and the UK at 4%.
The data helps provide insight into who is engaging most with cryptocurrencies in different global markets. Younger generations are most actively participating across countries.

Here is a summary of the key points from the sources cited:

Digital technologies are adding new layers to financial inclusion by allowing more people to access and participate in banking services. However, it also enables more extensive profiling and assessment of individuals.
During the 2008 financial crisis, debt markets malfunctioned due to liquidity shortages and difficulties valuing assets. Reforms are needed to force banks to insure against liquidity risks.
Chinese tech companies have advantages in AI due to massive data collection abilities, which are enabled by cultural differences around privacy.
Chinese regulations provide guidance on private sector overseas investments to ensure they are genuine and not for illicit purposes like money laundering. Investments aligned with the Belt and Road initiative are encouraged.
Digital currencies may become more broadly accepted forms of currency in the future as technologies advance, but there are still open questions around issues like privacy and regulatory oversight.
Chinese tech companies are poised to become increasingly powerful globally as they leverage strengths like large centralized platforms and access to vast user data for AI training.

Here is a summary of the article “Artificial Intelligence Research and Development in China” by Marion Laboure et al. from 2018:

China has placed a strong emphasis on developing AI capabilities and sees AI as a strategic priority for its economy and national security.
The Chinese government has invested heavily in AI research through initiatives like the Next Generation Artificial Intelligence Development Plan. This aims to become the world leader in AI by 2030.
China has numerous AI labs and research centers across the country focused on areas like computer vision, natural language processing, and robotics. Major tech companies in China are also investing heavily in internal AI research.
Chinese universities have become global leaders in certain AI fields through partnerships with industry and government-funded research projects. Top AI talent is being cultivated.
IP protection and ethics are concerns as China’s approach to innovation differs from Western nations. Issues around data privacy and surveillance are also raised by China’s goals of becoming a leader in AI.
Overall, China’s large-scale and centralized approach poses challenges for other countries in the global competition around developing advanced AI capabilities. Continued investment and policy support suggest China will remain an AI powerhouse.

Here is a summary of the key points from the passages:

Isil Erel and Jack Liebersohn (2020) found that FinTech lenders did not substantially substitute for banks in providing Paycheck Protection Program loans during the COVID-19 pandemic, suggesting banks continue to play an important role.
Bruce Carlin et al. (2017) found that FinTech adoption varies significantly across generations, with younger generations being more likely to use FinTech services due to greater financial technology literacy.
The OECD (2017) report discusses the potential for FinTech to transform pensions by lowering costs, increasing choice, and improving customer experience through digital tools and processes.
Several papers investigate the rise of robo-advisors and their impact on lowering fees and increasing access to financial advice and services. Robo-advisors still have limitations compared to human advisors but are improving through hybrid models.
Studies also examine the growth of FinTech and how it can promote financial inclusion, literacy, and competition in retirement planning, investing, banking, and other financial services. Regulatory efforts aim to balance innovation with protecting consumers from risks.
Centralized platforms are easier to construct and popularize than decentralized platforms. However, firms are often wary of decentralized platforms because they are inherently harder to control.
As a result, companies may opt to create their own centralized platforms despite the drawbacks of suboptimal performance compared to decentralized platforms.
This summary is based on a reading titled “The Blockchain Phenomenon— The Disruptive Potential of Distributed Consensus Architectures” which analyzes the tradeoffs between centralized and decentralized platforms from the perspective of companies. It finds that while decentralized platforms have technical advantages, the lack of control makes firms prefer centralized platforms even if they are less optimal.

Here is a summary of the provided sources:

Source 1 discusses an axiomatic approach to financial inclusion modeling. It presents a framework based on axioms and explores policy implications.

Source 2 is a book that discusses issues and case studies related to using financial inclusion for poverty alleviation and sustainable development. It contains a chapter that references the relationship between financial inclusion and economic infrastructure.

Source 3 is an ADBI working paper that analyzes how digital finance can accelerate financial inclusion in Southeast Asia.

Source 4 is an NBER working paper that analyzes the relationship between fintech adoption and risk-taking at the household level.

Source 5 is a book that provides an overview of the fintech industry and landscape for investors, entrepreneurs and visionaries.

Source 6 is a journal article that analyzes various factors affecting financial inclusion, taking an ecosystem perspective.

Source 7 provides background context on South Africa’s economy and development since apartheid ended, discussing GDP, unemployment, and inequality metrics.

Source 8 is a book that discusses South Africa’s transition from apartheid and the challenges of distributing the “liberation dividend”.

Sources 9-11 discuss the Global Findex database, a worldwide survey that measures individuals’ access and usage of financial services.

Sources 12-15 discuss issues related to financial inclusion in China, including the urban-rural gap, constraints of local financial institutions in rural areas, and the role of fintech giants in improving access.

Source 16 summarizes the economic benefits of fintech according to a report by the Australian Treasury.

Source 17 discusses improvements to financial inclusion and poverty indicators in Colombia since the late 1990s/early 2000s crisis period.

Source 18 provides an overview of a literature review on financial inclusion in Colombia.

Source 19 presents Ernst & Young’s 2019 global fintech adoption index.

Source 20 provides mobile penetration data in various countries from a GSMA report.

Source 21 summarizes research on power dynamics and challenges of leading social change, especially when existing norms are reinforced.

Source 22 discusses how Alibaba evaluates borrowers based on their online shopping history to increase financial access.

Source 23 outlines identity verification requirements for India’s Aadhaar card system.

Source 24-26 discuss challenges to rural financial inclusion and inclusion of marginalized groups through various case studies.

Source 27 defines fintech and its relationship to financial inclusion and economic infrastructure.

Here is a summary of the key points from “Kunt et al., ‘Measuring Financial Inclusion’“:

The paper discusses methods for measuring financial inclusion, which is defined as access to useful and affordable financial products and services delivered in a responsible and sustainable way.
It reviews existing survey-based measures of financial inclusion like ownership of an account at a formal financial institution, use of savings and credit products, and level of access/availability of financial services.
Collecting accurate and representative data on financial inclusion in developing countries poses challenges due to lack of administrative data and potential biases in self-reported survey data.
The authors developed the Global Findex database, which measures people’s use of financial services across over 140 economies based on surveys. This database is now seen as the primary source for cross-country comparisons of financial inclusion levels.
The paper discusses how the measures can help monitor progress on financial inclusion goals, identify excluded groups, and inform policymaking. However, limitations in data availability, frequency and quality need to be considered when doing cross-country analyses and assessing impact over time.

This summary provides an overview of some key points from the source:

It discusses Maslow’s hierarchy of needs theory and several studies on the relationship between government spending/policies and economic growth.
It outlines different welfare state regimes/models like conservative, liberal, and social democratic.
It mentions challenges around developing universal social security/pension coverage in countries like China, India, and other BRICS nations.
It discusses the potential for fintech and digital finance to promote financial inclusion in developing countries by addressing issues like infrastructure access, KYC/AML regulations, and building trust.
Regulatory sandboxes and approaches like in the EU and India are evaluated as ways to support fintech innovation while managing risks and compliance.
Overall it synthesizes literature at the intersection of welfare state/social policy regimes, economic development, financial inclusion/fintech, and the roles of government intervention and regulation. But it does not provide a detailed summary or evaluation of any single source.
Overregulation can hinder fintech startups’ innovation, growth, and return on investment. Regulatory sandbox programs allow startups to test products and services in a controlled environment with reduced time-to-market costs and support in compliance.
The first regulatory sandbox was launched in the UK in 2015. Other countries like the Netherlands and Denmark also offer sandboxes. With Brexit, the EU sees an urgent need for a cross-border sandbox.
Regulatory sandboxes aim to provide fintech startups the ability to test innovations with appropriate consumer protections and access to finance. Singapore and others have since launched similar programs to encourage experimentation.
As cash use declines globally, digital payments via wallets and cards are rising. Technologies like China’s WeChat super app demonstrate the potential of integrated digital platforms. Data collection and use present challenges regarding privacy regulations.
Cryptocurrencies and digital currencies rely on cryptography and distributed ledgers. Stablecoins pegged to assets aim to reduce volatility for transactions. Projects like Facebook’s Diem plan to issue currencies pegged to dollars, euros, etc.
Countries vary in their regulatory approaches to digital currencies. China actively regulates against private issuance while supporting development of its digital yuan. Overall regulatory activity is increasing as adoption and technologies evolve.

Here is a summary of anti-money laundering laws and regulations designed to prevent the financing of terrorism:

Anti-money laundering (AML) laws require financial institutions and other regulated companies to implement certain policies and procedures designed to detect and prevent money laundering and the financing of terrorism.
Key requirements of AML laws include customer due diligence (know-your-customer procedures), record keeping, reporting of suspicious transactions, compliance programs, and monitoring transactions for unusual or suspicious activity.
Financial institutions must verify customer identity, understand the nature and purpose of customer relationships, and conduct ongoing monitoring of accounts for consistency with the customer’s business and risk profile.
Covered entities must report certain domestic cash transactions above a certain amount as well as suspicious transactions that may involve money laundering or terrorist financing to government regulators.
Regulated sectors include banks, money services businesses, securities brokers, investment companies and advisors, insurance companies, and certain other non-financial businesses like casinos and dealers in precious metals.
The goals of AML/CFT laws are to prevent criminals from using the financial system to disguise illegally obtained funds or finance terrorist organizations and activities. It aims to promote transparency and make it more difficult for illicit funds to enter the mainstream financial system.

Here is a summary of the key points from the acknowledgments section:

Lionel Melkebeke was the first person to introduce the author to mergers and acquisitions and financial services, and encouraged the author to write books.
The author’s experiences at AnaCap Financial Partners, McKinsey, and start-ups provided invaluable insights that helped in writing the book. The author thanks various mentors, peers, colleagues, friends, and entrepreneurs from these organizations.
Glenn McMahan provided excellent editing work for the book. Nicolas Moreau, Preeti Sahai, Rangesh Vittal, James Butler, and Rachel Hathaway also contributed edits and insights.
The book could not have been completed without the support of the author’s family members, who are dedicated the book to.
In summary, the acknowledgments section thanks the many individuals and organizations that supported and influenced the author throughout their career, and who helped make writing this book possible. Mentors, colleagues, editors, friends, and family are all recognized for their contributions.
Paytm is a major digital payments platform in India that helps drive financial inclusion. Peer-to-peer platforms and crowdfunding platforms like Kickstarter are also mentioned.
Pensions and challenges supporting elderly populations are discussed, particularly in Europe. This is connected to trends in declining birth rates and aging populations.
Kenya has seen notable success and development with M-Pesa, a mobile money platform operated by Safaricom.
“Know Your Customer” verification and anti-money laundering practices like those imposed by regulators are discussed.
Latin America has potential for financial technology and inclusion progress.
China’s People’s Bank and use of digital currency and payments apps like WeChat Pay are covered. Trade tensions with the US are also mentioned.
Issues like poverty, financial exclusion, and support for rural/migrant workers are addressed. Microfinance and supporting small businesses and entrepreneurs are part of the solutions discussed.
Privacy, data protection, and debates around digital footprints, surveillance, and convenience are covered in relation to new technologies.
The role of millennials and younger generations in driving fintech adoption and preference for digital options over traditional banks is examined.
Public services leveraging fintech and challenges supporting welfare states are discussed.
Regulatory initiatives like sandboxes and taxation issues involving blockchain/crypto are summarized.

#book-summary